Living Economics

The Truncated Job Ladder
The job ladder that has been truncated from the bottom and from the top means longer formal education to get to the bottom of the ladder and more limited promotion prospects once on the ladder.

Macy's used to fill its executive training corps by recruiting stock boys. Many of those jobs no longer exist. (WSJ) Firms across the country are hiring less and less from within the company, making their upper-level positions open to a larger talent pool, while outsourcing more and more lower-level jobs, which were traditionally entry-level positions, to other companies that specialize in those services. This allows many companies to operate with greater efficiency, but it also has the effect of turning many entry-level positions into dead-end jobs.

Starting with a large company like the old Macy's as a janitor is like stepping on to a tall ladder, one with many rungs close together, whereas the professional cleaning service such as Merry Maids is a shorter ladder with fewer rungs further apart. The larger the company and more diverse the available positions, the more opportunity there is to transfer to a different kind of job, but the flatter and more specialized the company, the less room to maneuver and the less hope of something greater in the future.

One commonly opined solution to the plight of workers in dead-end jobs is more education. If they were simply trained in other skills, then they would have more job opportunities. This is not as true as formerly thought. Thanks to the ubiquity of Internet connectivity, almost the entire range of knowledge jobs can be offshored. The Internet permits U.S. employers to hire people in India, China and the Philippines as stock analysts, accountants, researchers, designers, engineers, radiologists --- indeed any occupation that doesn't require a hands-on, face-to-face, local presence." (Roberts) If the middle rungs of the job ladder all move to Asia, how will future generations of American workers climb to the top rungs?

Even though similar economic fears were expressed about "cheap foreign labor" shortly after WWII, the crucial difference between then and now is that cheap foreign labor then was coupled with cheap foreign technology (Roberts). American workers had access to better capital, so they were able to remain more productive than their counterparts in Asia despite their higher wages. Now, however, since many Asian countries are politically more stable, it is safer for American firms to invest in Asia than it was fifty years ago. The Asian labor of today uses the same technology as American labor, and that means Asian workers are just as productive as US workers, so the only difference is the cost of labor.

The classic tale of social mobility in the United States is that, despite one's humble birth, one can start at the bottom and work one's way up the economic ladder. But as the blue-collar job ladder is shortened from the top due to outsourcing, many workers are frozen on the low rung of the top-shortened job ladder of the flattened specialized firms. 12% of workers who started in the labor market in the late 1960s and early 1970s remained stuck in low-wage jobs 10 to 15 years into their careers. But for workers who entered the labor market in the 1980s and early 1990s, that percentage had more than doubled, to 28%. (WSJ)

On the other hand, as the white-collar job ladder is shortened from the bottom due to offshoring, access to the top rungs of the job ladder has become increasingly difficult. The on-the-job training that used to be acquired in middle-level jobs must now be earned through long years of formal education. Even though U.S. firms and consumers both benefit from outsourcing and offshoring, the shortened job ladder from both the top and the bottom can only mean a diminution of upward mobility.

References:
  • Appelbaum, E. (Editor), et al. Low-Wage America: How Employers Are Reshaping Opportunity in the Workplace. Russell Sage Foundation Publications (September 1, 2003)
  • Roberts, Paul Craig. "Jobless in the USA," NewsMax.com, August 7, 2003.
  • WSJ. 6/6/2005. "Slow Train: Promotion Track Fades for Those Starting at Bottom."
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